Huhtamaki India (HUHPPL)

CMP: | 311 Target: | 375 (21%) Target Period: 12 months BUY

January 1, 2021

Innovator in flexible packaging industry…

Huhtamaki India (HIL) was incorporated in 1935 as Paper Product Ltd. In
1999, Huhtamaki Oyj acquired majority stake (currently ~67%) from the Particulars

I-direct Instinct
erstwhile promoter and changed the name accordingly. HIL is the leading Particular Ammount
player in the flexible packaging industry, providing packaging & labelling Market cap (| crore) 2349.9
solutions to its clients through its ~18 plants and two R&D centres across Total Debt (| crore) 268.8
India. The major client includes Nestlé, HUL, P&G, Mondelez, Coca Cola, etc. Cash & Inves (| crore) 13.6
Further, we believe strong client base, launch of innovative products (backed EV (| crore) 2605.1
by strong R&D of parent) & focus on expansions (organic+ inorganic) would 52 Week H/L 336/165
help HIL expand its footprint in the domestic & international markets. As a Equity Capital (| crore) 15.1
result, HIL may witness revenue, PAT CAGR of 10%, 20%, respectively, in Face Value(|) 2.0
CY20E-22E supported by higher margin and saving in interest costs.
Triggers Key Highlights

Focus on premium products to help drive margin for HIL  Leading flexible packaging company
in India with strong promoter
HIL has a strong support from its parent (Huhtamaki Oyj) to launch pedigree
innovative user friendly packaging solutions for its key clients. It has  Focus on launching innovative
launched various innovative packaging products such as packaging for packaging solution
Paper Boat, ID vada batter, Kinder Joy, stand-up pouches with closures (for  Assign BUY rating to stock, valuing it
rice brands), cone sleeves (Cornetto). Huhtamaki’s ‘blueloop’ is another at 16x average CY20E-22E average
EPS of | 23 with target price of
innovative packaging solution launched in CY19, which can be recycled and | 375/share
is well accepted by coffee, confectionery, dry food, personal & home care,

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etc, industries. Currently the premium product contributes ~25% in overall Risks to our call
topline, which commands higher margin (I-direct estimate: ~800 bps
compared to company level margin). HIL aims to increase the proportion of 1) Delay in passing on higher raw
premium products in total revenue in the coming years, which would help it material prices to customer may
lead to flattish EBITDA margin
to drive overall EBITDA margin up by ~100 bps in CY20E-22E.
2) Pricing pressure due to rising
competition
F&B industry: Key driver for innovative flexible packaging
The flexible packaging industry in India is likely to grow at 10% CAGR to Price performance
| 64,000 crore by FY23 from ~| 37500 crore in FY18 led by increased 400 15000
demand from the food and beverages (F&B) industry. The F&B industry
300
contributes ~60% of total flexible packaging demand while the rest comes 10000
from the pharmaceutical, industrial chemical, personal care and other 200
industries. We believe rising demand for packaged food among consumers, 5000
100
to maintain hygiene amid pandemic, and increasing government focus on
food processing industry in India would help drive demand for flexible 0 0
Sep-19

Dec-20
Feb-20
Jan-18
Jun-18

Jul-20
Nov-18
Apr-19

packaging, going forward, thereby benefitting a strong player like HIL.

Strong growth in exports business

HUHPPL Nifty
HIL’s export revenue grew at 29% CAGR in the last five years led by client
additions and penetration of soup cube across South East Asia and LatAm
regions. Over the last five years, HIL has added various overseas clients in
its portfolio through acquisition of business of Positive Packaging, Ajanta
Packaging and Mohan Mutha Polytech. We believe robust global supply
Research Analyst
chain network along with strong backing of parent in launching innovative
products would aid HIL in gaining market share globally. Sanjay Manyal
sanjay.manyal@icicisecurities.com
Valuation & Outlook Hitesh Taunk
hitesh.taunk@icicisecurities.com
A leadership position in the domestic flexible packaging industry, strong
client base and focus on launching innovating products will be key drivers
of revenue & PAT growth in CY20E-22E. Healthy balance sheet (D/E: 0.4x,
RoE: ~25%, RoCE: ~24%) and backing of a strong promoter strengthen our
belief on Huhtamaki India to command higher valuation. We value the stock
at | 375 i.e. 16x P/E on CY21E-22E average EPS of | 23. We assign a BUY
recommendation to the stock.
 I-direct Instinct | Huhtamaki India ICICI Direct Research

Key Financial Summary

P&L Account (| crore) CY19 CY20E CY21E CY22E
Net Sales 2582.4 2623.2 2851.3 3173.2
EBITDA 292.9 282.6 334.9 378.3
EBITDA Margin (%) 11.3 10.8 11.7 11.9
Net Profit* 139.1 132.4 163.6 189.6
EPS (|) 18.4 17.5 21.7 25.1
Balance Sheet (| crore) CY19 CY20E CY21E CY22E
Equity 15.1 15.1 15.1 15.1
Net worth 666.4 660.8 778.9 923.1
Gross Debt 268.8 238.0 208.0 158.0
Gross Debt: Equity (x) 0.4 0.4 0.3 0.2
Net Debt 255.2 224.2 180.3 118.1
Return ratios(%) CY19 CY20E CY21E CY22E
RoE 24.7 20.0 21.0 20.5
RoCE 23.6 21.1 24.2 25.1
RoIC 25.2 23.0 26.5 28.4
Valuations (x) CY19 CY20E CY21E CY22E
P/E 16.9 17.8 14.4 12.4
P/BV 3.5 3.6 3.0 2.5
EV/EBITDA 8.7 9.0 7.4 6.3
Source: Company, ICICI Direct Research *PAT has been adjusted for one time gain of ~ | 31 crore in CY19

Exhibit 1: Recognised innovative products

Source: Company, ICICI Direct Research

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 I-direct Instinct | Huhtamaki India ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock

Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

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 I-direct Instinct | Huhtamaki India ICICI Direct Research

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I/We, Sanjay Manyal, MBA (Finance) and Hitesh Taunk, MBA (Finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
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